Starting a new business can be overwhelming, and the initial capital investments can make profitability seem like a distant goal. Fortunately for new small businesses in Nova Scotia, the provincial government makes it easier to manage some of the startup costs by lowering a company’s tax burden in the early years.
The New Small Business Tax Deduction
Nova Scotia offers tax relief for new small businesses in the form of a new small business tax deduction. This tax deduction applies to a small business during the first three years of operation as long as the business meets the criteria. If this is a one-person operation, the deduction does not apply, but as soon as the business takes on at least two employees, it may be eligible as long as one of them is full time. Keep in mind, the business must be completely new, not just a rebranding of a business that’s already in operation. This includes a business your client might already have with other owners, such as sole proprietorships, partnerships, and corporations. While most new small businesses can apply, a company is not eligible if it offers these services:
Accountants can’t take this deduction for themselves, but they can help their clients or management in other industries take advantage.
How to Apply
To qualify for this deduction, a company must submit CRA Form 341 at the end of each of its first three years of operation. Section 42 of Nova Scotia’s Income Tax Act requires the submission of a three-page application to the Nova Scotia Department of Finance and Treasury Board. These forms are due by the end of the year, and you should keep your clients current, because the department does not process applications if your clients haven’t submitted prior year forms. This applies even if the company was not eligible for the deduction in prior taxation years. Also, the board must receive all applications by the end of the third year. The form asks you to provide basic information about shareholders’ ownership shares and asks questions to determine if there is any disqualifying criteria. You should also collect wage and salary information about employees, including the total hours worked and what percentage of these employees are Nova Scotia residents. Make sure to note if there are any changes in the business’ eligibility status from prior years’ applications.
The full-time employee cannot be related to any shareholder, so if your client has a relative on the payroll, that employee does not count toward the two-employee requirement. The company also cannot operate a business that’s associated with a lawyer or other ineligible business type. Beneficiaries of trusts where the beneficiaries are also ineligible cannot apply. If your client is a subsidiary of another company, it is also ineligible. It must be a completely independent new small business to qualify. Once this criteria is proven, your client can obtain a Nova Scotia Tax Deduction Eligibility Certificate and receive this tax break for its small business.
This tax break provides a valuable incentive for people who are starting a new business in Nova Scotia. To help your clients save money as they start their new businesses, make sure they take advantage of this program. If they don’t qualify, help them find other credits and deductions to offset the cost of building a business from the ground up.